Many college students find it necessary to apply for loans because they cannot get enough in grants or scholarships to pay for all their school expenses. This should be evident at the time a student leaves for school, but it can be based on factors that surface after they are in attendance.
A change in major or additional studies may require more funds, or financial aid award amounts may be decreased for any number of reasons.
Whether a loan is taken out at the start of the freshman year or is necessary later when grants dwindle, the student must understand that any monies borrowed will have to be repaid at a future date. Hence the name student “loan” in lieu of Pell “Grant.”
Did you know that between 1/4 and 1/3 of the people who borrow using student loans miss the very first installment when it is time to begin paying the money back? This doesn’t happen just because those borrowers aren’t trustworthy. Many students relocate and don’t receive any notification until late, and some lose paperwork when they relocate.
It is important to keep records of loans along with the agreement of when the money must begin to be paid back to the lender. Some students have more than one loan, which confuses things if accurate and organized records aren’t kept. Several loans can also make it difficult to repay if they remain independent of each other.
According to statistics, when student loans are consolidated into one loan, less than 1/5 of the first payments are missed. There is generally no savings to consolidate all the loans, but it obviously makes it simpler.
Setting up a direct debit from a checking account is a good way to ensure that loan payments are made on time. Some people have a problem with debit payments, but there is an advantage to setting them up. Federal student loan interest rates are reduced by 0.25% for auto debit payments. Some private student loans may be reduced by as much as 0.50%.
Repayment of a student loan has no penalty for paying early like many other types of loans do. Doubling up payments or paying extra whenever possible can save money over the life of the loan. There are also tax savings attributable to the interest paid for student loans, which are taken off aside from other deductions.
While borrowing for an education may not be the first choice, it is a helpful alternative for parents with limited funds and students who cannot otherwise obtain the education they want.
Building a good credit rating early in adulthood is very important, as is maintaining it through the years so you can have the financial security you want.